Samsung, SanDisk to Ride NAND’s Ascendency, Says Bernstein

By Tiernan Ray

Bernstein Research’s Mark Newman today publishes the fourth and fifth installments of what he is billing as a six-part series examining the trends and prospects in memory technologies.

In part one of the series, on Monday, Newman posed the question of what three-dimensionalNAND flash memory and 3D DRAM chips will do to “bit growth,” a common measure of increasing demand, and to costs.

He concluded that both NAND and DRAM are up against heavy technical challenges that will affect bit growth and drive up prices.

NAND we believe the “wall” is 10nm, beyond which scaling will be impossible with its current floating gate cell design as the number of electrons are too few. Even leading up to 10nm we see many serious obstacles that will continue to slow down bit growth and cost declines. In DRAM, we also see a limit somewhere in the 1Xnm node, which will slow bit growth and cost declines going forward. We don’t see the current limit being hit in DRAM quite as soon as NAND.

In part two on Tuesday, Newman opined that a new technology called “ReRAM” might replace both NAND and DRAM as they run into challenges:

Resistive random-access memory (ReRAM or RRAM) utilizes a dielectric material, which is sandwiched between two electrodes. When a sufficiently high voltage is applied across the cell, a filament forms in the dielectric and lowers the resistance of the cell. The wire can be broken by reversing the voltage, therefore increasing resistance. It stores data using cell resistance — a filament lowers the resistance (binary 1) and a cell without a conductive filament is high resistance (binary 0). ReRAM can read and write much faster than PCRAM and STT-MRAM, and requires lower voltages. It has the potential to replace NAND going forward, and there are researches going on to improve its endurance further to make the new technology suitable for wide adoption in applications.

In part three, yesterday, he opined that Samsung Electronics (005930KS) and SanDisk (SNDK) may both benefit as NAND becomes more complex. Newman maintains Outperform ratings on both stocks, and a $75 price target on SanDisk shares and a ₩2,500,000 target on Samsung shares.

Newman argues both may increasingly incorporate their own NAND “controller” chip technologies, writing “NAND technology is highly complex and evolving rapidly. We see Samsung and SanDisk as best positioned with leading controller solutions and system expertise, with other players investing aggressively to catch up.”

Today, Newman asks in part 4 of the series why NAND is “overtaking” DRAM use.

“Plummeting” prices for NAND have “enabled NAND to overtake DRAM and NOR as the cheapest solid-state memory type and, more importantly, catch up to the competitive storage technologies of HDD and ODD,” writes Newman.

He sees sales of NAND coming even with sales of DRAM this year, at $32 billion a piece in annual industry revenue, and surpassing it next year, with perhaps $37 billion in industry revenue versus $36 billion for DRAM.

Newman offers the following graphic to show the relative revenue growth of the different memory technologies:

Again, Newman sees Samsung and SanDisk benefitting the most from the ascent of NAND.

In part 5 today, Newman writes that solid-state drives using NAND are poised to rise from perhaps $10.9 billion in annual sales this year to $20.3 billion by 2017, as the technology spreads more broadly to the PC market:

We believe the SSD market will be worth $20B by 2017 with Enterprise Server & Storage SSDs accounting for over half of the value (see Exhibit 1). While PC SSDs have disappointed so far, we estimate adoption will speed up significantly in the next few years. The PC segment has underperformed expectations to date; however, we believe that adoption will speed up significantly in the next few years. The combination of competitive pricing and the reduced need for storage will lead consumers to embrace SSDs in the near future. Overall, SSDs and hybrid solutions will replace pure HDD solutions, and we expect pure HDD usage in all PCs to fall below 50% by 2015.

In all of this, Newman doesn’t spend a lot of time on Western Digital (WDC) and Seagate Technology (STX), the titans of conventional hard drives, of course, but also vendors of solid-state devices. He mentions in passing the “hybrid HDD,” where flash is combined with disk. But he quickly dismisses it, writing, “Expensive — only available from Seagate; Does not meet Intel’s (INTC) ultrabook specifications.”

As for Micron Technology (MU), which makes both DRAM and NAND, Newman rates the stock Outperform as well, with a $13 price target, writing “We believe that DRAM should keep recovering in 2013 following Micron’s acquisition of Elpida and subsequent supply rationalization. The NAND rebound we also expect to continue through 2013.”

Shares of SanDisk today are up 5 cents at $57.95. Shares of Samsung Electronics fell ₩25,000, or 1.7%, to close at ₩1,484,000 in Seoul trading.

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MAY 23, 2013 3:15 P.M.

phileasfogg wrote:

>>>> He mentions in passing the “hybrid HDD,” where flash is combined with disk. But he quickly dismisses it, writing, “Expensive — only available from Seagate

That's not quite true. WDC also makes and sells hybrid HDDs. I wouldn't be so quick to dismiss these devices - they serve a purpose and there is enough growth in that market to justify future investments from both WD and STX. And, in time, their prices will also come down. Mr. Newman shouldn't be so quick to dismiss them.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.